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Inflation and Economic Growth

Author Info

Listed author(s):
  • Robert J. Barro

Abstract

Data for around 100 countries from 1960 to 1990 are used to assess the effects of inflation on economic performance. If a number of country characteristics are held constant, then regression results indicate that the impact effects from an increase in average inflation by 10 percentage points per year are a reduction of the growth rate of real per capita GDP by 0.2-0.3 percentage points per year and a decrease in the ratio of investment to GDP by 0.4-0.6 percentage points. Since the statistical procedures use plausible instruments for inflation, there is some reason to believe that these relations reflect causal influences from inflation to growth and investment. However, statistically significant results emerge only when high- inflation experiences are included in the sample. Although the adverse influence of inflation on growth looks small, the long-term effects on standards of living are substantial. For example, a shift in monetary policy that raises the long-term average inflation rate by 10 percentage points per year is estimated to lower the level of real GDP after 30 years by 4-7%, more than enough to justify a strong interest in price stability.

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File URL: http://www.nber.org/papers/w5326.pdf
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 5326.

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Date of creation: Oct 1995
Publication status: published as Robert J. Barro, 2013. "Inflation and Economic Growth," Annals of Economics and Finance, Society for AEF, vol. 14(1), pages 121-144, May.
Handle: RePEc:nbr:nberwo:5326
Note: EFG ME
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Find related papers by JEL classification:
  • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General
  • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

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  1. James M. Boughton, 1991. "The CFA Franc Zone; Currency Union and Monetary Standard," IMF Working Papers 91/133, International Monetary Fund.
  2. Robert J. Barro, 2013. "Inflation and Economic Growth," Annals of Economics and Finance, Society for AEF, vol. 14(1), pages 121-144, May.
  3. Barro, Robert J, 1996. "Democracy and Growth," Journal of Economic Growth, Springer, vol. 1(1), pages 1-27, March.
  4. Cukierman, Alex & Kalaitzidakis, Pantelis & Summers, Lawrence H. & Webb, Steven B., 1993. "Central bank independence, growth, investment, and real rates," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 39(1), pages 95-140, December.
  5. Alex Cukierman, 1992. "Central Bank Strategy, Credibility, and Independence: Theory and Evidence," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262031981, July.
  6. Stephen Knack & Philip Keefer, 1995. "Institutions And Economic Performance: Cross-Country Tests Using Alternative Institutional Measures," Economics and Politics, Wiley Blackwell, vol. 7(3), pages 207-227, November.
  7. Logue, Dennis E & Willett, Thomas D, 1976. "A Note on the Relation between the Rate and Variability of Inflation," Economica, London School of Economics and Political Science, vol. 43(17), pages 151-158, May.
  8. Robert J. Barro, 1991. "Economic Growth in a Cross Section of Countries," The Quarterly Journal of Economics, Oxford University Press, vol. 106(2), pages 407-443.
  9. Fischer, Stanley, 1993. "The role of macroeconomic factors in growth," Journal of Monetary Economics, Elsevier, vol. 32(3), pages 485-512, December.
  10. N. Gregory Mankiw & David Romer & David N. Weil, 1992. "A Contribution to the Empirics of Economic Growth," The Quarterly Journal of Economics, Oxford University Press, vol. 107(2), pages 407-437.
  11. Alesina, Alberto & Summers, Lawrence H, 1993. "Central Bank Independence and Macroeconomic Performance: Some Comparative Evidence," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 25(2), pages 151-162, May.
  12. Grier, Kevin B. & Tullock, Gordon, 1989. "An empirical analysis of cross-national economic growth, 1951-1980," Journal of Monetary Economics, Elsevier, vol. 24(2), pages 259-276, September.
  13. Kormendi, Roger C. & Meguire, Philip G., 1985. "Macroeconomic determinants of growth: Cross-country evidence," Journal of Monetary Economics, Elsevier, vol. 16(2), pages 141-163, September.
  14. Schwartz, Anna J., 1993. "Currency boards: their past, present, and possible future role," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 39(1), pages 147-187, December.
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Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. Real wages & inflation
    by chris in Stumbling and Mumbling on 2015-01-23 13:33:19
  2. Chris Dillow — Real wages & inflation
    by contrarianmedia@hotmail.com (Mike Norman) in Mike Norman Economics on 2015-01-24 02:26:00
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